Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 168

SMSF asset allocation changes unexpected

There has always been considerable misinformation surrounding the asset allocation of SMSFs. The main reason is the inadequate categorisation and long-time lags in the ‘official’ Australian Taxation Office (ATO) statistics. Cuffelinks has discussed this directly with the ATO, as reported in previous articles here and here.

The main shortcoming is that the category ‘Overseas shares’ only includes direct share investments, and excludes the billions invested through listed and unlisted trusts and other managed investments. When I confronted the ATO on overseas share asset allocation, their response was:

“It’s fair to say a substantial amount is in international equities, much larger than the number quoted under the ‘Overseas shares’ category.”

According to the official statistic, less than 1% of SMSF assets resides in ‘Overseas shares’. Considering that SMSFs hold one-third of our $2 trillion in superannuation assets, this inaccuracy is a major shortcoming. In fact, people marketing global funds often take advantage of this low number, imploring trustees to correct their ridiculous asset allocation mistake and invest in their global fund. The truth is, trustees are already using hundreds of other available global channels.

A more accurate SMSF asset allocation number

SuperConcepts has released its 2016 Financial Year Analysis based on the actual investments of about 3,300 SMSFs administered by its subsidiary Multiport. Due to its relationship with AMP, this group has more financial adviser input than the average SMSF, giving a greater allocation to managed funds and global equities, but it is instructive of SMSF trends nonetheless.

Asset allocation of sample SMSFs as at 30 June 2016

The interesting and sometimes unexpected changes in the last year include:

  • A fall in equity investments, with domestic down from 37.1% to 34.5%, and international down from 14.1% to 13.1%, refuting the claims about the TINA (There Is No Alternative to equities) mentality in the sector. SuperConcepts attributes this fall to trustees reducing their exposure during periods of higher volatility, and less appeal of the local large cap stocks. Among the most commonly held investments, two pooled structures, Magellan and Platinum, are favourites with this group for global exposure.
    Over the course of 2015/2016, the amount held in the top 10 listed securities fell from 16.5% of all investments to 14%. The Top 10 shares by market cap still represent about 38% of Australian equities held by SMSFs, but the reduction recognises that investors are more concerned about the capital growth of the banks, BHP, Newcrest, and Telstra. Increasingly, SMSFs are looking for opportunities outside of the large caps.
  • Cash holdings have increased from 17% to 18% despite low interest rates. Within this segment, term deposits rose more strongly than at-call cash, which took a hit in the last quarter in the face of falling cash rates. It’s surprising to see the large allocation in this segment.

Cash-holdings-of-sample-SMSFs-30-June-2016

  • Property has been the big winner, up from 18.3% to 21.7%, including both listed and unlisted segments. Direct property (often business premises held by the SMSF and rented to one of the trustees, rather than residential property) rose steadily, but the major increase came in the ‘other’ category of syndicates and unlisted trusts. With listed A-REITS trading at a hefty premium to NTA, unlisted trusts have benefitted from the search for yield at better prices.

Property-holdings-of-sample-SMSFs-30-June-2016

  • Fixed interest allocations fell overall, but hybrids and direct holdings rose. Managed funds in this segment comprise only 4.4% of assets, losing out badly to cash.

(The full report also looks at market movements versus funds flow and makes the same conclusions regarding increases in cash and property and reductions in fixed interest and equities).

Trustees take cash flow decisions in the final quarter

Both inflows and outflows from SMSFs are always at their highest in the June quarter as trustees take action before the end of the financial year. However, with uncertainty surrounding the May 2016 budget, average inflows to SMSFs in the June 2016 quarter of $10,700 were the lowest since 2012. June withdrawals are also heavy, at $17,800, as trustees ensure they meet minimum pension requirements. Withdrawals are always heavier than contributions in any quarter, showing how much the continuing growth of SMSF balances relies on market performance.

Checking from another source

We checked these numbers against the Vanguard/Investment Trends March 2016 SMSF Investor Report, based on a survey of 3,531 SMSF trustees. Its major findings are consistent in direction and include:

  • Direct shares (outside of managed funds and ETFs): 38% of total SMSF assets in 2016, down from 41% in 2015
  • Cash and other cash products: 25%, up slightly from 24% in 2015
  • ETFs: now at 3%, up from 2% in 2015
  • Managed funds: 10%, up from 9%
  • Direct property (residential & commercial): 11%, up from 10%
  • Other investments: 13%, steady

Investment Trends believes the allocation to direct shares (outside of managed funds and ETFs) has declined over the past three years as a result of market performance and poor investor sentiment towards individual shares.

Marketing opportunities

These SMSF investment patterns suggest there are good opportunities for bond funds and other cash alternatives, ex-20 Australian equity funds and other global equity funds. Property is popular but managed funds miss out to direct property, unlisted and syndicates.

 

Graham Hand is Editor of Cuffelinks. See the full Investment Patterns Survey here. SuperConcepts is a Cuffelinks sponsor.

 

5 Comments
Rob
August 17, 2016

Ha!
SHL, VOC, SLK, NAN, RMD (all now sold), ASX, WAX, CAR, SEK, MQG, VRT and some others (all still held).
No other banks, resources or TLS.
Cheers

Billy
August 16, 2016

So Rob, you know what the next question is!

Rob
August 14, 2016

I should have clarified, the 60% allocation to ASX was not simply via index, but in selected individual stocks, so yes it was stock picking per se, but nevertheless was still also a 60% allocation to ASX shares, so both statements are correct.
The return is audited, post contribution, after costs/tax credited return to member statements.
Cheers

SMSF Trustee
August 12, 2016

With respect Rob that allocation could not have returned anything like 15%.
None of those three asset classes delivered anything like that, not even double digits.

Maybe it was the individual shares you had. Some did well, like ASX or Wesfarmers or many small caps. But that is stock selection not asset allocation that got you that return.

How did you calculate that return? I have seen many people over the years claim to have got a great return and ridiculed fund managers, but when I've gone through how they calculated it, they had simply not done it properly. Not saying you haven't, but it's easy to make a claim like that without any evidence. And as I said, your asset allocation could not have given you that return in 2015-16, it's not mathematically possible.

Rob
August 11, 2016

Thanks Graham,
My own SMSF allocations have not changed in the past 12 months with approx. 15% cash, 25% overseas equities (via LICs) and 60% domestic equities. This allocation returned ~15% in FY16.
Cheers
Rob

 

Leave a Comment:

RELATED ARTICLES

SMSFs and COVID: the biggest trends in 5 charts

What is happening with SMSFs? Part 2

Six advantages of an SMSF

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.